Falling prices expected to push more local mortgages underwater

The number of Chicago-area homeowners who owe more on their homes than the properties are worth fell last year as home values stabilized, but the market isn’t out of the woods yet.

At the end of the year, 36.9 percent of local homes with a mortgage were “underwater,” or worth less than their debt, or nearly 645,000 properties, according to a report from Seattle-based Zillow Inc. That’s up from 36.6 percent in the third quarter but down from 39.2 percent a year earlier.

Yet Zillow forecasts that the figure will rise this year, to 37.3 percent, as Chicago-area home prices, which seemed to be recovering, fall further.

One reason: Foreclosures in Illinois take an especially long time to process, meaning Chicago will recover more slowly than some other big cities.

“You’re going to see it linger at high levels longer because you’re not getting the rise in home values, and you’re not getting the quick foreclosures,” said a Zillow spokeswoman.

To view an interactive Zillow heat map breaking out the numbers at the zip-code level, click here.

Underwater homes are a concern because people whose equity has been wiped out are more likely to default on their mortgages — and less likely to put their homes up for sale. They also hurt the broader economy because they depress household wealth, curbing homeowners’ willingness or ability to spend money.

Nationally, 27.5 percent of homes with a mortgage were underwater in the fourth quarter, down from 31.1 percent a year earlier. Zillow forecasts that the figure will drop to 25.5 percent at the end of the year.

Recommended for You

Sign up for newsletters

Morning 10

-

Need-to-know stories from Crain's and around the web. Monday-Friday at 7 a.m.

Today's Crain's

-

A roundup of the day's important business news. Monday-Friday around 3 p.m.

Breaking News Alerts

-

Up-to-the-minute info on what's happening in Chicago business right now.

Health Pulse Chicago

-

Your source for actionable, exclusive and inside news and data on the health care industry. Monday, Wednesday and Friday at 5:30 a.m.